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== WIP in construction projects ==
Work- Inin- Processrocess in construction accounting identifies the value of construction projects whichthat are currently being worked on by the construction firm. To properly account for each project, four values are needed for each project at the end of any given month (or period): ▼# the Salessales Priceprice (excluding sales tax) for the project ,▼# the total Costcost Estimateestimate for the project ,▼# the costs-to-date
# the billed-to-date
By taking the Costscosts- Toto- Datedate divided by the Costdost Estimateestimate, the "percentage complete " for the project is calculated. For example: ▼▲Work-In-Process in construction accounting identifies the value of construction projects which are currently being worked on by the construction firm. To properly account for each project, four values are needed for each project at the end of any given month (or period):
▲# the Sales Price (excluding sales tax) for the project,
▲# the total Cost Estimate for the project,
# the Costs-To-Date,
# the Billed-To-Date.
▲By taking the Costs-To-Date divided by the Cost Estimate, the "percentage complete" for the project is calculated. For example:
:* Assume a project is estimated to cost $70,000 by the time the work is complete
:* Assume at the end of December, $35,000 has been spent to date for the project
:* $35,000 divided by $70,000 is 50%,; therefore, the project can be considered 50% complete at December 31.
Calculation of the Percentagepercentage complete is a valuable tool in determining how much the client should be billed. - itIt is important that Billingsbillings, and even collection of these billings, are greater than the costs expended to do the work. This ensures that the client is directly funding the construction work, and that the contracting firm minimizes borrowing on behalf of the client. Using the example above, suppose the following:
:* the Salessales Priceprice of the project is $100,000
:* $100,000 times 50% (the level of completion) = $50,000
Therefore, for the period ending December 31, the client should be invoiced ''at least'' $50,000 to properly fund the work.
==Tax treatment==
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